http://www.nytimes.com/2005/04/15/opinion/15krugman.html?oref=login&pagewanted=print&position=

April 15, 2005
OP-ED COLUMNIST
The Medical Money Pit
By PAUL KRUGMAN

A dozen years ago, everyone was talking about a health care crisis. But
then the issue faded from view: a few years of good data led many people to
conclude that H.M.O.'s and other innovations had ended the historic trend
of rising medical costs.

But the pause in the growth of health care costs in the 1990's proved
temporary. Medical costs are once again rising rapidly, and our health care
system is once again in crisis. So now is a good time to ask why other
advanced countries manage to spend so much less than we do, while getting
better results.

Before I get to the numbers, let me deal with the usual problem one
encounters when trying to draw lessons from foreign experience: somebody is
sure to bring up the supposed horrors of Britain's government-run system,
which historically had long waiting lists for elective surgery.

In fact, Britain's system isn't as bad as its reputation - especially for
lower-paid workers, whose counterparts in the United States often have no
health insurance at all. And the waiting lists have gotten shorter.

But in any case, Britain isn't the country we want to look at, because its
health care system is run on the cheap, with total spending per person only
40 percent as high as ours.

The countries that have something to teach us are the nations that don't
pinch pennies to the same extent - like France, Germany or Canada - but
still spend far less than we do. (Yes, Canada also has waiting lists, but
they're much shorter than Britain's - and Canadians overwhelmingly prefer
their system to ours. France and Germany don't have a waiting list
problem.)

Let me rattle off some numbers.

In 2002, the latest year for which comparable data are available, the
United States spent $5,267 on health care for each man, woman and child in
the population. Of this, $2,364, or 45 percent, was government spending,
mainly on Medicare and Medicaid. Canada spent $2,931 per person, of which
$2,048 came from the government. France spent $2,736 per person, of which
$2,080 was government spending.

Amazing, isn't it? U.S. health care is so expensive that our government
spends more on health care than the governments of other advanced
countries, even though the private sector pays a far higher share of the
bills than anywhere else.

What do we get for all that money? Not much.

Most Americans probably don't know that we have substantially lower
life-expectancy and higher infant-mortality figures than other advanced
countries. It would be wrong to jump to the conclusion that this poor
performance is entirely the result of a defective health care system;
social factors, notably America's high poverty rate, surely play a role.
Still, it seems puzzling that we spend so much, with so little return.

A 2003 study published in Health Affairs (one of whose authors is my
Princeton colleague Uwe Reinhardt) tried to resolve that puzzle by
comparing a number of measures of health services across the advanced
world. What the authors found was that the United States scores high on
high-tech services - we have lots of M.R.I.'s - but on more prosaic
measures, like the number of doctors' visits and number of days spent in
hospitals, America is only average, or even below average. There's also
direct evidence that identical procedures cost far more in the U.S. than in
other advanced countries.

The authors concluded that Americans spend far more on health care than
their counterparts abroad - but they don't actually receive more care. The
title of their article? "It's the Prices, Stupid."

Why is the price of U.S. health care so high? One answer is doctors'
salaries: although average wages in France and the United States are
similar, American doctors are paid much more than their French
counterparts. Another answer is that America's health care system drives a
poor bargain with the pharmaceutical industry.

Above all, a large part of America's health care spending goes into
paperwork. A 2003 study in The New England Journal of Medicine estimated
that administrative costs took 31 cents out of every dollar the United
States spent on health care, compared with only 17 cents in Canada.

In my next column in this series, I'll explain why the most privatized
health care system in the advanced world is also the most bloated and
bureaucratic.


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